Revenue Bond Enhancements

Most revenue bonds are sold on the merits of the cashflow supporting the project. Large utilities are high grade (low interest rates) whereas new development projects are low grade (higher interest rates). For new or weaker credits, investors will likely demand 1) higher interest rate, 2) equity in the project, 3) funding a debt service reserve fund, 4) credit enhancement from a related party and/or 5) more restrictive covenants. These enhancements can be from cash infusions to reduce the debt, pledging annual revenues to support the debt service from a related party, third party insurance companies or a mixture of the above.

This flowchart visually represents the financial lifecycle from project inception, through revenue generation, bond issuance, and finally to the bondholders' returns.

Project (pink box) is the initial phase where the project is defined or undertaken.

  • Revenues (green box) represent the income generated from the project.

  • Issuer (blue box) is the entity responsible for issuing bonds, which are backed by the revenues from the project.

  • Bondholder (orange box) are the investors or entities that purchase these bonds, providing funding for the project.

Additionally, the flowchart includes two feedback loops:

  • Project Funding (green text) loops from Issuer to Project, indicating how bond proceeds are used to fund the project.

  • Bond Proceeds, Project Fund, Bond Accounts, Reserves, Costs of Issuance, Other (green text) further detail how the funds are allocated and managed.

  • Bond Payment, Covenants, Reporting (red text) loops from Bondholder to Issuer, indicating the financial obligations and reporting requirements of the bond issuer to the bondholders.

Revenue Bonding for Broadband

TLDR:

CoreConnect will not burden the counties with debt.

CoreConnect Project

CoreConnect plans to issue revenue bonds backed by the network's cash flow to finance the buildout of the network. By leveraging the bond issuance with BEAD grant funds the project will address the needs of the unserved and underserved populations in our region. CoreConnect’s purpose is charitable and serves the public good. CoreConnect is not a governmental entity or a political sub-division. CoreConnect is a 501(c)(3).

What Are Revenue Bonds?

Revenue bonds are backed by specific income from the issuer. They often fund infrastructure projects and are issued by local governments or non-profits for charitable purposes or more commonly public utilities such as electric, sewer, or water utilities, or from sales tax for wider public projects. Repayment of revenue bonds is mainly reliant on the income generated from the projects they finance. 

Tax Exempt Revenue Bonds

The Internal Revenue Code (specifically Section 103) allows for the issuance of tax-exempt bonds for qualified purposes by certain types of organizations, including 501(c)(3)s, under strict conditions. These conditions include that the proceeds from the bonds must be used for capital expenditures for public purposes, and there are limitations on the amount of private business use.

The income of a 501(c)(3) organization is generally exempt from federal income tax, and this extends to the interest on bonds they issue. This exemption makes the bonds more attractive to investors since the interest they earn is not subject to federal income tax, thereby reducing the cost of borrowing for the organization.

Revenue Bond Structure

Bonds are typically sold either via a broadly distributed public sale or to a limited number of investors in a direct placement. Publicly offered bonds usually have a fixed rate and are fully amortized over a 20-35 year period. Direct placements usually are shorter in nature (10-15 years). Bonds typically have semi-annual interest payments and annual principal payments. Credit worthy entities seek a credit rating assigned by an independent third party (there are 3 major rating agencies) to realize the lowest interest rates available.